BUSINESS

Canadian economy will make it 'tough' for TD to meet earnings growth: Clark

04/04/2013 11:34 EDT | Updated 06/04/2013 05:12 EDT
Slower growth in the Canadian economy will pressure the banking sector and make it "tougher" for TD Bank (TSX:TD) to meet its earnings targets this year, chief executive Ed Clark told investors on Thursday.

The head of one of Canada's biggest banks offered his outlook for the industry at the bank's annual meeting in Ottawa, but reassured the audience that TD's leadership plans tap assets other than its domestic banking operations for growth.

"Yes, we remain in a slow growth economy and a low interest rate environment, and that is hard environment for a deposit-based bank like TD," Clark told the bank's annual meeting in Ottawa.

"It is going to be tougher to meet our target."

The bank is aiming for adjusted earnings per share growth of seven to 10 per cent in 2013, but Clark acknowledged that not everyone shares its confidence.

"You can see that in our stock price, which has frankly not had much growth in the past year," he said.

"The market is worried that we won't be able to match previous performances."

In the past 52 weeks, TD Bank stock has risen as high as $86.20 and dropped as low as $75.70 on the Toronto Stock Exchange. On Thursday, its shares closed down $1.43 at $82.

Investors shouldn't be worried though, the outgoing CEO said, because the bank is prepared to "rotate" the sources of earnings and look outside its domestic consumer banking operations. In particular, he pointed to TD Bank's presence in the United States as an area of future growth.

Less than 10 years after it entered the market, TD has become the 11th largest bank in the U.S. with 1,315 locations.

"Clearly our unique position in the United States ... gives us a core advantage as the U.S. recovers," he said.

Other divisions like business banking, credit cards and wealth management will also become key resources, he added.

On Wednesday, Clark announced that he plans to retire late next year and will be replaced by Bharat Masrani, who is currently head of the bank's U.S. operations.

The incoming CEO has been with TD in various positions since 1987, having most recently helped develop one of the bank's biggest assets — its stateside presence in personal and commercial banking. Masrani will face significant challenges in the domestic banking industry as he begins an 18-month transition period that's intended to make a smooth shift between his roles.

Some of the advantages which once helped the Canadian economy weather the financial crisis are starting to fade. The list includes a dollar that has fallen from its heights and it now close to par with the greenback, softer demand for commodities, and the start of constrained federal spending, Clark said.

Weaker productivity also remains a major challenge for the economy, he noted.

Businesses have complained there is a lack of workers trained in the proper jobs to fill vacancies, and that productivity is taking a hit because of it.

"Like many Western countries we are facing the problems, as well, of growing inequality and the decline of the working middle class," he said.

"So all of this will likely contribute to slower economic growth in Canada, perhaps about 1 1/2 per cent growth in 2013, and we will likely grow less in the U.S. over the medium term."